The chancellor's final budget brought the curtain down on the end of New Labour, Act One with a mighty confident flourish. Flowers were thrown, opposition cabbages didn't even reach the stage. Now he retires to the dressing room to prepare for Act Two. Meanwhile the audience contemplates his grand opus so far, wondering what comes next.

This last great performance gave us the chancellor in red mode, poor children's friend, the stealth-taxing secret socialist. No other word but redistribution describes how the money has flowed towards the poorest with a little taken from the top. Why, even his henchmen now use the wicked R-word once banned from New Labour's lexicon. Average and poorer families were again the target of his munificence, new mothers, child care, paternity leave - a budget for poorer women, so a new mother will be £2,240 a year better off. Another 170,000 children will be lifted above poverty levels. And as more billions poured in for hospitals, schools, drug treatment, urban regeneration and myriad good causes - free museums, films, dilapidated churches, sports clubs - that now familiar Brown budget wonderment struck again.

For who could imagine a Labour chancellor with £16bn in his pocket, inflation licked, national debt and interest rates down, full employment within grasp? All pensioners (who claim) are in April lifted out of poverty - an unthinkable promise back in 1997, almost as extraordinary as ending child poverty. There has never been so big a step up for the poor. As for the rest? Good times brought jam to every social slice - 4% higher consumer spending each year, average living standards up rosily, mortgages an average £1,200 cheaper, growth outstripping all predictions. Happy days and the best is yet to come, as the public spending jam rolls out in earnest now.

So there are red roses aplenty for red Gordon. He has turned the political debate away from tax cuts - there were none, only extra credits for the poor. That was a crucial test of his nerve. How tempting with so much cash to knock another 1p off pre-election income tax. It was a 1999 error not repeated because it didn't need to be. Labour has gained in confidence since then and the public mood is with them - pressing for spending, not for tax cuts.

This chancellor congratulates himself on long-termism, but after an excellent first act, the end of his story is still unknown, judgment too early to make. For all the feel-good glow each of his budgets brings, there remains the big long-term question. Will he effect a fundamental and long-term shift in Britain's tax and spend regime? The year 2003-2004 is the crunch by which time the spending now laid out must have delivered undeniable results in health, education and transport - with public services proud, well-paid and thrusting ahead for all to see. Current public patience will run out by then. Tory posters reading "You paid the cash, so where are the nurses/teachers ..." and so on make people snort with scorn at Tory cheek now - but not by then if change is not everywhere about to be seen. As people get yearly richer, so expectations of public services rise too. Never before has a Labour government produced increases in public investment above trend growth, and yet the big picture is still a history of under-spending.

If it turns out that Act One was as good as it ever gets, then this first term was not enough. If recession rolls in on a dark tide from across the Atlantic, then we will look back and wonder how Labour did so little when the times were extraordinarily good. Why so timid, why so slow? The chancellor may have ended boom-and-bust but what we had instead in public spending was bust-and-boom. The depth of that bust is becoming ever more apparent: the price of prudence was painfully high. It will now not be until 2003-4 that Britain returns to the same level of public spending as a proportion of GDP that it inherited in 1997. A killer fact.

Of course it is not quite as simple as that. Within that total, the huge sums previously wasted on unemployment and debt interest have been redistributed to excellent effect. But none the less, over any length of time, the amount a country taxes and spends defines fairly accurately the quality of its public service. We will still not be spending nearly enough. It was Tony Blair himself who promised NHS spending would meet the EU average, thus drawing attention to the yawning gap between Europe and Britain in every other public sphere as well. The disastrous failure to spend in 2000 - with a massive £5bn capital undershoot - accidentally added to the time of famine, delaying results.

Another killer fact is that, despite the quite radical redistribution by government, the gap between the rich and poor has still widened under Labour. It always happens in prosperous times, but Labour made no attempt to claw back any of the extra income flowing in to top earners - let alone taxing their growing capital wealth. Indeed, capital gains and inheritance taxes have shrunk to insignificance. Let the Tories grumble about Labour's "45 new stealth taxes", the big picture is still that the rich are getting richer faster than the rest and the poor are still being left behind.

The ongoing comedy of Conservative policy - made not so much on the hoof as in the Magimix - gives Labour the chance to confront the tax question head on. William Hague, excited by George Bush's trillion dollar promise, now says he will make a mind-boggling £114bn tax cut. Suddenly lurching for a wild west alternative, the Tories now oblige Labour to talk honestly about tax. But an open advocacy of virtuous taxation has always been noticeably lacking in every Gordon Brown budget speech. He has extinguished public demand for tax cuts, but that's only half the battle. Hague's axe-man cuts require a broad and principled case to be made positively for taxes: they are not a "burden" if they buy the things that people want.

Praise of public wealth can face down the Tory nostrum that we each spend our own money better than the government does. If Labour's 10-year plans work as well as intended, there will be good evidence that public money well-spent buys much more collectively than citizens can each buy individually. But such words never spring easily to the chancellor's lips. This was a prudent budget - no horse-frightening in the City before an election. But future budgets need more radical shifts. Too often New Labour appeases and buys off opposing forces: this third-way strategy makes few friends or permanent changes. Long-term security for a left of centre government comes from persuading the public of the case for higher taxes - not from stealth or subterfuge. On taxes the people will not be fooled for long, but they might be persuaded to pay more.